Insurer Maximum Liability
JER ¥496.7 billion
Private carriers ¥524.3 billion
Japanese government ¥ 1,270.8 billion
Total ¥ 52,291.9 billion
Source: Annual Report 2010, Japan Earthquake Reinsurance Co., Ltd.
FIGURE 4. 10 Largest Insurance Companies by Net Written Premium
Rank Company Country
1 France
2 Italy
3 Germany
4 Japan
5 united States
6 united States
7 Japan
an A.M. Best ranking of international insurance companies, Zenkyoren ranked
seventh in the world in terms of net
written premium in 2009 (see the table
in Figure 4). As with the private carriers’
earthquake premium, most of Zenkyoren’s premium income is set aside as
liabilities to pay future claims.
Axa S.A.
Assicurazioni Generali SpA
Allianz SE
Japan Post Insurance Co. Ltd.
unitedhealth Group
American International Group Inc.
National Mutual Insurance Federation of Agricultural
Cooperatives
8 Munich Reinsurance Co.
9 WellPoint Inc.
10 State Farm Group
Source: A.M. best
Germany
united States
united States
Company Status
Earthquake
Coverage
Reserves
Standing Strong
The earthquake insurance system in
Japan illustrates that there are no one-size-fits-all catastrophe insurance
programs. Within Japan, a nation with
significant earthquake exposure, we see
two vastly different catastrophe insurance systems at work. A comparison of
these systems is provided in Figure 5.
Despite significant differences, both
systems manage to limit exposure to
losses through a combination of policy
limits, loss limits, and reinsurance protection. Accounting standards that allow
for reserves to accumulate over time
provide the insurers with separate resources to pay claims. These similarities
will enable both systems to fulfill their
obligations to claimants without suffering financial impairment.
Reinsurance
FIGURE 5. Comparison of Private Insurer and
Cooperative Insurer Residential Earthquake Coverage
Private Insurers Cooperative Insurers
For-profit Nonprofit
optional endorsement to
residential fire insurance policy
Automatically included in
building endowment policy
Long-term savings provides
reserves for unforeseen natural
disasters
JER and Japanese government International reinsurance
market
At the same time, Japan’s insurers,
private and cooperative, are funded adequately for the Tōhoku earthquake.
Unlike statutory and GAAP (generally accepted accounting principles) accounting
in the United States, which do not allow
for the establishment of a reserve for
events that have not occurred, Japanese
accounting laws allow for pre-event catastrophe reserves. This has ensured that
funds are available to pay for damages
stemming from the Tōhoku earthquake.
Japanese private insurance carriers
retain 100 percent of the earthquake
premiums received less expenses as a
reserve for future earthquakes. Any un-
derwriting gains and investment income
are required to be set aside as addition-
al reserves. The Japanese government
maintains a separate government re-
serve for its share of the future liabilities.
SEAN McALLISTER, a fellow of the
Casualty Actuarial Society and a member
of the Academy, is a consulting actuary
for Milliman in Wayne, Pa.
ELIZABETH COHEN, a fellow of the
Casualty Actuarial Society and a member
of the Academy, is a consulting actuary
for Milliman in Chicago.
Resources
Japan Earthquake Reinsurance Co., Ltd., 2010
Annual Report
Japanese National Federation of Agricultural
Cooperative Mutual Aid, April 28, 2011, press
release
Nowakowski, Piotr, and Yuji Kawamura,
“Earthquake Insurance System in Japan,”
Regards No. 8, December 2003, SCOR
Japan. http://scor-front1.heb.fr.colt.
net/www/fileadmin/uploads/publics/
REGARDS_200312_08_en.pdf
Suess, Oliver, “Investors in Munich Re’s Muteki
Cat Bond May Face Loss on Japan,” Bloomberg,
April, 1, 2011. www.bloomberg.com/news/2011-
04-01/investors-in-munich-re-s-muteki-cat-
bond-may-face-loss-on-japan.html
